Lack of financial services putting MMJ businesses in a bind

Time was medical cannabis businesses in Colorado were laughing all the way to the bank. Then the bank said, “beat it.”

Since the end of September, when Colorado Springs State Bank told marijuana customers they were no longer welcome, there has not been a bank in Colorado willing to do business with medical cannabis companies.

Rep. Jared Polis introduced a bill this spring to make it clear that doing business with licensed medical marijuana companies was legal. The bill has not yet passed and until it, or something like it, passes, financial services firms are concerned that federal law makes it a crime for them to knowingly do business with people who grow or sell marijuana period, no exceptions.

Polis’s Small Business Banking Improvement Act is pending before the Financial Services Committee.

“When a small business, such as a medical marijuana dispensary, can’t access basic banking services they either have to become cash-only—and become targets of crime—or they’ll end up out-of-business,” said Polis on his web site. “In states that have legalized medical marijuana, and for businesses that have been state-approved, it is simply wrong for the federal government to intrude and threaten banks that are involved in legal transactions.”

Polis’s bill would prohibit the Secretary of the Treasury from requiring any financial institution or any of its directors, officers, employees, or agents to report any suspicious transaction relevant to a possible violation of law or regulation if a person involved in such transaction is a legitimate business as determined by the state in which it is doing business.

It’s one thing for the feds to now and then raid a medical marijuana business that it claims is stepping over the line. It is quite another when federal rules governing banks require every bank to report every transaction that it believes is related to illegal drugs, and also to report every transaction involving $5000 or more in cash.

Medical marijuana shop in Lakewood. (Kersgaard)

Given that marijuana is still illegal nationally, these rules have caused virtually every bank to turn their backs on a business that is legal in more than a third of all states, thus ensuring that these businesses, already viewed skeptically by many, have to operate on cash only.

It’s a lot of cash. Estimates put the total medical marijuana business at close to $2 billion a year in America.

Colorado Springs medical marijuana business owners are desperately writing letters to every bank in the country asking if they will accept their business.

About 150 dispensary owners across the state are searching for a bank that will take their accounts, said Tanya Garduno, president of the Colorado Springs Medical Cannabis Council and owner of Medical Cannabis Center.

The medical marijuana industry has survived regulations, licensing, security and stacks of rules. But this banking issue “could be the deal breaker,” Garduno said. “We have to account for everything — sales, patient lists — trying to put this together with no bank could really kill us.”

It’s been nearly two months since Colorado dispensaries received notice from Colorado Springs State Bank that they had until the end of September to clear out their accounts. The bank, which is owned by Texas-based Herring Bank, was the last bank to openly welcome the dispensaries’ business.

“Everyone is trying to make it work on a cash basis,” Garduno said. “It’s going to be a funky next three months. I’m sure there will be folks that will shut down.”

So far this year, medical marijuana businesses in Colorado Springs have generated about $23 million in sales and contributed $580,533 in city sales taxes. That’s a 52 percent increase over last year’s collections and a sign that the industry is growing.

But, that does not make them desirable to bankers.

Banks fear being accused of money laundering and drug trafficking. While use of medical marijuana and dispensaries are legal in Colorado, the federal government does not recognize state’s authority and considers it illegal business.

Steve Fox, public policy director for the National Cannabis Industry Association, says Polis’s bill is important but that it represents only way to skin the cat. Knowing the difficulty of passing federal legislation, he says his group is also pursuing change at the regulatory level.

He says the rules that require banks to report suspected drug activity and to report large cash transactions can be changed without Congressional action.

“These rules are set by the Secretary of the Treasury and they can be changed by the Secretary,” said Fox.

He said his group is encouraging governors and other elected officials in state with legal medical marijuana to call and write Secretary Timothy Geithner to effect change.

Fox said the rules are designed to make it harder for illegal drug dealers to run their businesses but that legal medical marijuana businesses have nothing to hide.

“It is not as if they are trying to keep secrets. They just want to be able to deposit cash so that they can write checks to pay their rent, pay their employees and take care of business,” he said.

“I am cautiously optimistic that if we bring together state officials from California, Colorado and other states, we could get a change in the rules,” Fox said.

Failing that, he said it is only a matter of time before an employee of a medical marijuana business is killed in an armed robbery. Governor John Hickenlooper and Attorney General John Suthers have a responsibility to the people of Colorado to try and fix this situation. They need to stand up for the people in their state,” he said.

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About the Author

Scot Kersgaard

Scot Kersgaard has been managing editor of a political newspaper, editor and co-owner of a ski town newspaper, executive editor of eight high-tech magazines (where he worked with current Apple CEO Tim Cook), deputy press secretary to a U.S. Senator, and an outdoors columnist at the Rocky Mountain News. He has an English degree from the University of Washington. He was awarded a fellowship to study internet journalism at the University of Maryland's Knight Center for Specialized Journalism. He was student body president in college. He spends his free time hiking and skiing.